Downsizing is a natural step in the cycle of homeownership. For many people, moving to a smaller, more manageable living space is an effective way to unlock new freedoms in the next chapter of life.
While downsizing is traditionally aligned with the process of selling one’s current residence, opting to retain the property as a dedicated income generator offers homeowners a unique investment strategy as they enter the next phase of their life. In Toronto, where the rental market is extraordinarily active, homeowners who choose to downsize but retain ownership of their existing property can tap into this demand, transforming their home into a lucrative source of rental income. However, despite the advantages, this pathway will not suit every downsizer.
In this blog post, we’ll weigh the pros and cons of retaining your family home in Toronto as a downsizer.
Looking to buy or sell in West Toronto? Our strategic advisory services can help you exceed your market objectives. Call us at 416.441.2888 or reach us by email at evan@christensengroup.ca.
Why Downsize?
Downsizing to a smaller property often comes with lifestyle advantages, including reduced maintenance responsibilities, lower living costs, and enhanced convenience. By making this transition while retaining the original property as an investment, homeowners can enjoy the best of both worlds.
Why Retain Your Home?
For downsizers who elect to do so, retaining the home is primarily a financial move. When a home is used as an investment property, wealth is generated in two ways. The first is through cash flow – specifically, income received through tenants. The second way is through long-term equity as the property appreciates in value.
Ideally, moving to a smaller home while holding onto the existing property will allow downsizers to have a positive cash flow in the next chapter of their life. Rental income not only helps offset the costs associated with maintaining the property but also provides owners with additional financial flexibility. This income stream can contribute to the affordability of their next home or be reinvested for further wealth accumulation.
Toronto’s Rental Landscape
From a bird’s-eye view, utilizing a home as an investment property offers the opportunity to generate reliable, high-quality passive income. In Toronto, this prospect is particularly advantageous.
The city’s status as a world-class, quickly growing metropolis is directly in line with a high demand for rental properties. While already one of North America’s most active rental markets, population growth and immigration targets are set to further drive up rental averages – offering lucrative returns in the short and long term. In short, real estate investors in Toronto have access to a robust stream of potential tenants in a market that’s red hot.
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Market Considerations
Real estate in Toronto is dynamic and constantly changing. Both the resale and rental markets are subject to fluctuations, short and long term trends, and influence from outside factors. Although these markets function separately, they can impact each other based on how homeowners respond to market conditions.
To be more specific, depending on the contemporary conditions of Toronto’s resale market, holding onto a property may lead to higher returns on sale down the line. In a buyer’s market, when inventory exceeds demand or broader economic conditions impact buyer eligibility, homeowners who are looking to sell will face tougher circumstances when working towards their ideal result. While achieving a great sale in a buyer’s market is possible, some sellers may need to curb their expectations while their home is listed.
With that in mind, under less advantageous selling conditions, it may be more beneficial for downsizers to utilize their home as an investment property until market dynamics change. On the inverse, should the market heavily favour sellers, choosing to list may lead to a higher return on the sale.
For guidance on how market conditions may impact their goals, downsizers should always consult an experienced and high-performing real estate agent. Putting their market knowledge to work, an agent can provide informed, personalized advice based on the individual goals and needs of the homeowner.
Property Appreciation & Thinking Long Term
Toronto is a city in constant evolution, with ongoing urban development and infrastructure projects shaping its landscape. Homeowners who retain their property stand to benefit from the potential appreciation driven by these developments. Proximity to new transit hubs, cultural centres, or commercial districts can significantly impact property values, presenting an opportunity for owners to capitalize on the city’s growth.
Moreover, homeowners can explore the possibility of future development on their existing property. Notably, recent changes to regulations have allowed for the construction of additional stand-alone live-in units (also called garden or laneway suites). This potential for development can enhance the long-term value of the property, providing owners with a strategic advantage in the ever-changing real estate market. Alternatively, owning a garden suite provides downsizers with the opportunity to live on the same property as their family home.
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When Selling is the Better Option
While opting to retain the home as an income generator has its advantages, there are many instances where homeowners are better suited to sell. Ultimately, the decision to pursue this approach should align with individual goals, risk tolerance, and long-term plans. Given the complex nature of this strategy, it won’t always be the appropriate path for every downsizer.
Lifestyle Factors
Among financial factors, the decision to downsize is often driven by a shift in lifestyle needs. Many downsizers are looking for increased freedoms and fewer responsibilities. While owning an investment property is not a full time job, it does entail a number of management duties.
Therefore, if the homeowner’s new lifestyle preferences involve relocating to a different neighbourhood, city, or even country, selling the existing property may be a more practical choice. This allows for a seamless transition and ensures that the homeowner’s living situation aligns with their current priorities.
Financial Requirements
While keeping the home to earn rental income has its merits, homeowners facing financial constraints may find that selling the property is a more appropriate solution. The proceeds from the sale can be used to alleviate debt, invest in more liquid assets, or fund other essential aspects of the homeowner’s financial plan.
Preparing to downsize? Explore these market-informed resources to ensure you find success in the market.
Downsizing With Christensen Group
Regardless of whether you choose to sell your current home or keep it, downsizing is a considerable endeavour. That said, while the process is significant, it does not need to be overwhelming or difficult. If you wish to automate your downsize, the best place to begin is by working with a dedicated real estate team that can provide you with end-to-end service.
Christensen Group’s full-service approach to downsizing allows you to reach your real estate goals without hassle. Guiding you through the entire process from start to finish, we’ll assist you in facilitating a smooth transition to your new home. As experts in sourcing properties, placing offers, negotiating, and finalizing deals, helping you find the right home is our top priority.
Boasting over four decades of professional experience, we’ve served more than 3,000 clients in Toronto and Etobicoke. Whatever your personal or real estate aspirations may look like, our proven process can guide you towards your next chapter with ease.
Ready to begin your strategic downsize? Our advanced strategies and insider industry network can help you find the perfect property. Call us at 416.441.2888 or reach us by email at info@christensengroup.ca to get started.
